Heenan Blaikie’s lesson for Bay Street: Change or die; Heenan Blaikie’s sudden demise is a much-needed wake-up call for Canadian law firms, which are chasing too little high-dollar business

Heenan Blaikie’s lesson for Bay Street: Change or die

Drew Hasselback | February 8, 2014 7:00 AM ET

Ralph Lean was enjoying his time at Heenan Blaikie. It was a cosy perch that kept him busy, enabling him to work his Rolodex and, more importantly to him, stick it to anyone who thinks that 68-year-old lawyers are past their best-before date. He aimed to work well into his 70s. He had arrived at Heenan Blaikie just eight months ago, having left his previous Bay Street firm because he had reached mandatory retirement age for an equity partner.

Partners of law firm Heenan Blaikie LLP, a Canadian legal powerhouse which has for years been a favourite place for retired prime ministers, premiers and cabinet ministers to spend their post-political days, have decided to wind up the firm.

Just a month ago, things were looking good. Billings had hit a near-record $35-million for the month of December. And the full-year financial results for 2013 were nothing to sneeze at, either: profit of $75-million on revenue of $222-million. There was one problem, however. Income per partner had dropped 15%, prompting other firms to poach Heenan Blaikie’s stars. The rate of departures was starting to alarm.

A firm manager met with Mr. Lean on Jan. 17 to reassure the rainmaker. There was nothing to worry about, Mr. Lean was told. “Although they had some challenges, they thought they’d be able to work them out.”

Then, just seven days later, the same manager stopped by Mr. Lean’s office again. This time the message was hugely different. The Toronto office might downsize by half, and Mr. Lean might need to switch to a bigger firm that could better serve his clients. So Mr. Lean joined Gowling Lafleur Henderson LLP last Monday, just before Heenan Blaikie announced on Wednesday that it would wind itself up for good. He’s not bitter, either. “I’ve got nothing but good things to say about them.”

Heenan Blaikie’s demise, and the speed at which it happened, is a much-needed wake-up call for Canadian law firms, legal industry observers say. Too many Bay Street firms are chasing too little high-dollar business, and too many firms rely on a star-system that makes them susceptible to the same sort of run-on-the-bank of legal talent that brought Heenan Blaikie down this week. Critics predict other big Canadian law firms will get in trouble fast if they don’t change their business model.

Mitch Kowalski, author of Avoiding Extinction: Reimagining Legal Services for the 21st Century and a contributor to the FP Legal Post blog, thinks that if firms don’t wake up to change, another firm or two might implode over the next 18 to 24 months. For too long, lawyers have convinced themselves that there is a mystic quality to the profession that somehow renders it immune from the laws of business gravity, he says.

“Lawyers have to get their heads around the fact that we’re not that unique,” Mr. Kowalski says. “We’re going to have the same disruption that everyone else has gone through. We’re just late to the party in terms of being disrupted. But it’s happening now.”

Until Wednesday, Heenan Blaikie was one of the largest law firms in Canada, with 500 lawyers in nine offices across Canada and one in Paris. The firm, which will wind itself up over the next few months, has been known for its political clout. Former prime minister Pierre Trudeau worked there after he left public life until he died in 2000. Former prime minister Jean Chrétien has made it his post-politics home.

The firm’s collapse reveals a weakness behind its otherwise blue-chip appearance. Co-founder Roy Heenan, who retired as chairman of the firm in 2012, has expressed great disappointment in the wind-up. He complained this week about squabbling and rivalries among lawyers in the firm’s various departments and offices. Co-founder Peter Blaikie chose not to comment on the firm’s dissolution, since he hasn’t been involved with firm management for two decades. Still, he adds, he’s deeply saddened by the news and the disruption to staff.

We don’t need 25 national law firms. We need a fewer number that have the infrastructure to deal with certain kinds of deals

Heenan Blaikie has certainly had its own internal problems. Former partners are now speaking of weak leadership and a power-struggle between the Montreal and Toronto offices. There have also been well documented blow-ups, such as the 2011 revelation of links between Jacques Bouchard Jr., then Heenan Blaikie’s director of international business, and Ari Ben-Menashe, a lobbyist with some sketchy connections. Mr. Bouchard resigned after the National Post’s Brian Hutchinson and Graeme Hamilton reported on the relationship.

A veteran Bay Street lawyer, who doesn’t work at Heenan Blaikie but who is very familiar with the firm’s work and clients, noticed a cultural shift in recent years. Where once Heenan Blaikie took pride in its labour law practice, the firm seemed to be hiring anyone who could generate M&A and finance transaction deal flow. “You can’t be indiscriminate about hiring. They took on a lot of people that they shouldn’t have. Part of what you do to manage a firm is try to maintain a culture. They were just taking on people to bring in a lot of money.”

Not all rainmakers are equal — and the kind this blue-blooded firm boasts may bring in fees but not necessarily the kind upon which enduring law firms are built.Continue reading

The rapid exit of so many Heenan Blaikie partners got Bay Street’s attention. A firm’s financial statements might be private, but everyone can see when partners are voting with their feet. This highlights a problem with the star system.

Rainmakers might bring with them big books of business, but padding a firm with big names isn’t a long-term strategy. Two decades ago, a law school graduate was told to pick a firm that might be his or her employer for the next 30 or 40 years, says Ian Holloway, dean of the faculty of law at the University of Calgary. But in recent years, a star system has emerged, he says. The focus shifts from the firm’s brand name to a top lawyer’s brand power. This impairs a firm’s longevity, since more profits need to be paid out immediately to keep the stars happy.

“Fewer and fewer people are corporate people by inclination. That has severed this notion of firm loyalty,” Mr. Holloway says. “The partnership model keeps the eye focused on the next draw, or the next quarter, or the next year, but not on 10 years down the road.”

“Culture is the secret sauce,” adds David S. Brown, a partner with 152-year-old Toronto firm WeirFoulds LLP. “Every firm will go through its ups, downs and bumps. You can get through them when you have a tight, cohesive culture.”

The Canadian market seems to have room for two strata of firms. There is a short list of about 10 super-large Canadian firms, among them names such as McCarthy Tétrault LLP or Blake, Cassels & Graydon LLP, that have the resources and expertise to work on multi-billion dollar, international business. But there are another 15 to 20 firms that also want some of that business, but don’t necessarily have the resources needed to compete.

One might well ask why so many firms want the high end business at all. Lawyers are paid for their time, not for the size of the deal. The vast majority of Canadian M&A transactions involve deals valued at less than $25-million. WeirFoulds has made a strategic decision to focus on the smaller transactions, because there are a lot more of them, and the market for them is a lot more stable.

“Why do we have 25 national law firms?” asks Lisa Borsook, executive partner with WeirFoulds LLP in Toronto, a downtown firm that has designed itself as a “quad-boutique” that focuses on four related businesses: litigation, corporate, property and municipal law. “We don’t need 25 national law firms. We need a fewer number that have the infrastructure to deal with certain kinds of deals.”

Meanwhile, the big firms that have that high end business recognize that work won’t always come to them automatically. They’re embracing business tools, such as Lean Six Sigma, to cut costs and rethink how service is delivered. McCarthy Tétrault, for example, is doing this through a service it calls “MTOptimize.”

“Clients are under a lot of pressure right now. You have to respond to that. Big law firms, who think they’re fine, run the risk of ending up in trouble as well,” says Matthew Peters, national Leader for markets with McCarthy Tétrault.

And at the other end of the spectrum, a new generation of entrepreneurial lawyers sees opportunity in the change.

Omar Ha-Redeye, a Toronto practitioner who is co-chair of young lawyers division of the Ontario Bar Association, says the market is splitting into an elite group of top-tier firms, and a lower-end group of entrepreneurial firms and solo practitioners with lean, efficient practices.

“Anytime you have challenge in the market, it promotes innovation.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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